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Advanced Auditing

Notes The types of Co-operatives like Agricultural Credit Societies, Land Development Banks, Urban
Banks, Marketing and Processing Societies, Sugar Factories, Spinning Mills, Milk supply Societies,
Farming and Irrigation Societies, Weavers Societies, Industrial Societies, Consumers’ Societies,
Labour and Transport Societies, Electric Societies, Housing, Poultry and Printing, etc.
In its initial stages, Co-operation formed a Central subject. The first legislation on this subject
was the Co-operative Credit Societies Act of 1904 based on the report submitted by Sir Fredrik
Nicholson. This Act confined itself only to Primary Credit Societies. In order to bring the non-
credit societies also within its ambit, the Co-operative Societies Act, 1912 was enacted. The Act
of 1912 aimed at formation of Co-operative Societies for the promotion of thrift, self-help
among agriculturist, artisans and persons of limited means. Consequent upon the
recommendations of the Maclagon Committee on Co-operation in 1915, Co-operation became
a transferred subject in 1919 and each state began to enact its own legislation for its co-operatives.
In the post-independence period, in the light of the recommendations of the All India Rural
Credit Survey Report in 1954, a special role was assigned by Government to the Co-operative
movement in the process of national planning. In its enlarged role, the co-operative apart from
its primary role of helping its members, also assumed a larger responsibility of developing
national economy and promoting the objectives embodied in the Constitution. For this purpose
the State accepted and the co-operators conceded the responsibility of imparting strength to
Co-operatives wherever necessary by means of State Assistance and partnership, In 1959 Karnataka
State passed a separate Act entitled “The Karnataka Co-operative Societies Act, 1959” (KCS Act,
1959). The basic principles, however, confirmed to the two parent Central Co-operative Societies
Acts. The first of which was modelled after the Friendly Societies Act, 1793 of England. The 1959
Act has been amended from time to time with a view to accommodating the needs of changing
times and the aspirations of the people. The State Act contains comprehensive provisions for
audit of Co-operative Societies and makes it obligatory for the Director of Co-operative Audit
to audit or cause to be audited the accounts of every society at least once in a year.

12.5.1 Brief Features of the Financial Provisions of the K.C.S. Act

A Co-operative Society which has for its objects the promotion of the economic interests or
general welfare of its members, or of the public, in accordance with Co-operative Principles, or
a Co-operative Society established with the object of facilitating the operations of such a society
may be registered under KCS Act (Section 4). The aims of the society should not be inconsistent
with the principles of social justice, and its byelaws not contrary to the Provisions of the KCS Act
and Rules. It should comply with the requirements of sound business and have reasonable
chance of success before it could be considered for registration (Section 7). Thus a Co-operative
Society is a business organization with a special mode of doing business, in a strictly business
like manner tempered by a high moral purpose of encouraging in its members, habits of honesty,
industry, thrift, prudence, punctuality and mutual help. The liability of a Co-operative Society
may be limited or unlimited subject to the provisions of Section 4 read with Section 5. The
registration of a society shall render it a body corporate by the name under which it is registered
having perpetual succession and a common seal and with power to hold property, enter into
contracts, etc., (Sec.9). The Act provides for compulsory audit by the Director of Co-operative
Audit or a person authorised by him (Sec. 63).

Did u know? Under sub-section (4A) of Section 63 of the Act every Co-operative Society
shall submit for each Co-operative year, to the Registrar and the Director of Co-operative
Audit, statements showing the receipts and disbursements, Profit and Loss and the Balance
Sheet for the year and such other statements and returns as the Registrar or the Director of
Co-operative Audit may direct. According to Rule 51 of KCS Rules every Society has to

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